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On 'Tesla Time', One Week Can Change Things In A Hurry

Tesla CEO Elon Musk is betting $100 million that Tesla will continue to keep soaring.

With Tesla’s announcement today of a combination stock and convertible-bond offering that could potentially raise $830 million, it’s worth again revisiting how quickly things change on “Tesla Time” — the rapid-fire speed with which the upstart automaker is trying to reinvent the auto business. Here’s what CEO Elon Musk had to say last Wednesday about the company raising additional capital:

Well, we don’t have any plans right now to raise funding. But if it was possible, we could be opportunistic about raising a round. But we have spent no time on that at all.

I added the emphasis and will remind readers that this was 7 days ago in a public discussion that is subject to all sorts of SEC rules about disclosure and truth telling. There is no reason to doubt Musk’s honesty. At the time, the stock had closed at under $56 per share, having had a nice run from the mid $30s in March. The question Musk was responding to alluded to the stock price but also to the potential of something possibly going wrong and perhaps Tesla taking advantage of the situation to protect against that. It came from Morgan Stanley’s Adam Jonas:

So … when you look at where your share price is and is likely to be tomorrow, and you think about the factors that are outside of your control to kind of make sure that all this great work your team has done doesn’t go to waste potentially … Can you share your thoughts on potentially …[raising more capital] that could further improve your chances to keep investing in the business and focusing on the product and not the economic cycle?

Whether Musk was influenced by Jonas explicitly or not, what happened next was profound. The stock kept rising — it’s around $90 as I write this — and Musk doubtless got to ponder the opportunity to protect Tesla against a “force majeure” event, as he put it. Why risk the company’s future on an earthquake in the San Francisco Bay taking production offline for 6 weeks, when the capital markets would happily provide an additional cash cushion to Tesla right now? Why continue to be a political football, beholden to the U.S. Treasury when that debt can be repaid, in full, and the remaining risk borne by bondholders who opt-in for a note against the company?

And just like that like, with Jonas’ Morgan Stanley as well as Goldman Sachs, an offering memorandum was created and filed with the SEC. Musk himself is investing a total of $100 million in the deal, which should reassure potential buyers he’s in for the long haul. Furthermore, even though there’s a convertible portion, Tesla is promising to engage in some elaborate hedging to limit the dilution to shareholders associated with it.

Just weeks ago, 43% of the company’s shares were held short, betting the company — and it’s stock — were headed down. With the rise in share price, those bets may well be placed again. But the fundamental difference here is the bet becomes almost solely a financial one. Tesla’s balance sheet becomes unequivocally stronger with this offering and as deliveries of the Model S continue, the idea of the company completely falling flat seems increasingly remote. Of course, things have gotten awfully good, awfully fast for Tesla and risks do remain. For Musk and company, they probably wouldn’t have it any other way.

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